NTT forecasts record £4.5bn loss as share portfolio halves in value

Nippon Telegraph and Telephone Corporation - a firm best known for pushing back technological boundaries - ventured into uncharted financial territory yesterday by forecasting the biggest loss ever made by a non-financial Japanese company.

Japan's biggest carrier expects to fall ¥865bn (£4.5bn) into the red mainly because the bursting of the telecom bubble has destroyed the value of the overseas stock held by its subsidiary, NTT DoCoMo.

The loss - three times worse than was previously expected - comes from a special one-time charge of ¥2 trillion (£10.5bn) to restructure the company's domestic operations and write down the value of shares in foreign firms.

By announcing the charge, NTT is following a trend set by other telecommunications groups such as Vodafone, BT, France Telecom and AT&T, all of which are now paying the price for buying overvalued stock during the peak of the telecom and internet boom two years ago.

The bulk of the acquisitions - and the write downs - were made by NTT DoCoMo, the wireless subsidiary of NTT, which yesterday predicted its first slide into the red since listing in 1998.

With a forecast consolidated net loss of ¥36bn, DoCoMo has gone from being NTT's cash cow with profits of ¥365.5bn last year, to a drag on earnings.

The innovative and ambitious subsidiary, which launched the world's first third-generation mobile phone service last October, invested ¥1.9 trillion to secure partners around the world for 3G and its successful predecessor, i-mode.

With share prices plummeting, however, DoCoMo has had to make huge write-downs: ¥506bn from its share in AT&T Wireless, ¥263bn from its stake in KPN Mobile, ¥30bn from Taiwan's KG Telecommunications and ¥14bn from its holdings in Hutchison 3G UK.

In total the value of its share portfolio has halved. Keiji Tachikawa, the president of DoCoMo, said it was unrealistic to expect that prices would bounce back, but he defended the decision to make the acquisitions in 2000.

"There was something of a bubble at the time, but nobody realised then that it was a bubble," Mr Tachikawa told reporters in Tokyo. "I don't think it was a strategic mistake to make the investments."

In a recognition of some responsibility, however, the company - which listed on the London and New York stock exchanges last month - has cut the pay of executives by up to 20% and suspended all bonuses.

The parent company NTT was also hurt by the global collapse in share prices. It suffered a ¥538bn write down on its stake in Verio, an American web-hosting company. This followed a similar charge earlier in the year.

But NTT's biggest problems are in its domestic market, where new competitors are challenging the monopoly it long held. NTT has shifted 100,000 of its workers to lower-paid positions or asked them to accept early retirement.